Department of Economics and Foundation Course, R.A.P.C.C.E. monetary theory of inflation asserts that money supply growth is the cause of inflation. 1. The quantity theory of money holds if the growth rate of the money supply is the same as the growth rate in prices, which will be true if there is no change in the velocity of money or in real output when the money supply changes. Irving Fisher’s view: V is fairly constant PPT A competitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the price. Quantity Theory of Money Velocity P Y V = M Equation of Exchange M V = P Y Quantity Theory of Money 1. Marxian Theory of Unemployment. The Link Between Money and the Economy Conventional theory assumed that all money is used for GDP transactions. MS is the supply curve for money. The link between interest rates and the demand for money is then The H theory is called the multiplier process, because it is a process over time which ultimately results in multiple expansion or creation of bank credit, deposits and money from a given increase in H. It explains ‘how banks create credit or deposits’ when their reserve base increases. A sum of money is at least one side of every market transaction. The idea that the money supply will directly impact both prices and inflation rates, ceteris paribus 2. What is a theory?• A set of concepts, definitions, relationships, and assumptions that project a systematic view of a phenomena• It may consist of one or more relatively specific and concrete concepts and propositions that purport to account for, or organize some phenomenon (Barnum, 1988) In doing so I shall briefly outline three strands of quantity theory to emerge from this process and I shall point out their different emphases and focal points. Each of the three discussed theories—corporate social responsibility, the triple bottom line, stakeholder theory—can be fit into the movie A Civil Action. However, as seen above, Keynes’ theory of speculative demand for money has been challenged. In a step-by-step manner, Mises presents the case for sound money with no inflation, and presents the beginnings of a full-scale business cycle theory. Presentation Summary : This chapter examines the quantity theory of money and its link to the demand for money. 1. With other things constant, the price level is proportional to the money supply. There is near- unanimity among monetary economists around the theory of money supply that says, that the single most important and dominant factor that determines money supply is H. For short, we shall call it the H theory of money supply. The quantity theory of money 1. Definition: Quantity theory of money states that money supply and price level in an economy are in direct proportion to one another.When there is a change in the supply of money, there is a proportional change in the price level and vice-versa. Thus money plays a causal role in the classical theory which means that changes in the money supply cause changes in the absolute price level, and in normal income. MD is the demand curve for money which changes along with income. History & Evidence shows this. Doubling the money supply would double prices. Presentation Title: The Quantity Theory Of Money. Criticisms of Keynes Theory of Money and Prices: Keynes’ views on money and prices have been criticised by the monetarists on the following grounds. View and Download PowerPoint Presentations on Fishers Quantity Theory Of Money PPT. Money is the most important commodity in a market economy. Store of value Keynes explained the theory of demand for money with following questions- 1. Financial institutions are able to create money, for example by lending to businesses and home buyers, and accept-ing deposits backed by those loans. Medium of exchange 2. Friedman’s quantity theory of money can be explained diagrammatically in the following figure (fig.10): In the figure while the X-axis shows the demand and supply of money, Y-axis measures the income level. Theory of Demand and Supply. A Treatise on Money was the culmination and fullest statement of this analysis, but it also marks the point of departure to the second stage. Desire theories hold that happiness is a matter of getting what you want (Griffin, 1986), with the content of the want left up to the person who does the wanting. Direct Relation: Keynes mistakenly took prices as fixed so that the effect of money appears in his analysis in terms of quantity of goods traded rather than their average prices. Their theories are based on elements like employee’s acceptance to a wage level, the prevalent internal wage structure, employee’s consideration on money or’ wages and salaries as motivators. Sums of money are both sides of many transactions. Faster money supply growth causes faster inflation. In the first, his theories concerned money as a means of exchange but were still classical in nature. A theory of money needs a proper place for nancial intermediaries. 5.Theories of Development: Reconciling the Differences • Development economics has no simplistic and universally accepted paradigm: But it is also not the case that any policy or strategy will work! According to Fisher, MV = PT. Credit theories of money, also called debt theories of money, are monetary economic theories concerning the relationship between credit and money.Proponents of these theories, such as Alfred Mitchell-Innes, sometimes emphasize that money and credit/debt are the same thing, seen from different points of view. According to Wild, 2000, the trade theory that state that nations ought to accumulate money wealth, typically within the style of gold, by encouraging exports and discouraging imports is termed mercantilism. It also does not assume that the return on money is zero, or even a constant. In his manuscript “Theories of Surplus Value,” German philosopher and economist Karl Marx argued that unemployment is not only inherent in a capitalist system but also necessary. It is supported and calculated by using the Fisher Equation on Quantity Theory of Money. Thirdly, this theory is superior to both the PPP theory and mint parity theory from the policy point of view. Fisher’s theory explains the relationship between the money supply and price level. The origins of theory is common elements deduced from practice! Download the quantity theory of money PPT for free. Displaying Powerpoint Presentation on the quantity theory of money available to view or download. Chapter 6 The Quantity Theory of Money Frank Hayes In this essay I wish to consider the quantity theory analysis and to extend this into a discussion of the major policy approaches to economic stabilization. To explain it, the classicists specified two channels through which monetary changes are transmitted to the real sector of the economy. We know that a market is an arrangement that enables buyers and sellers to get information and do business with each other. The modern quantity theory is generally thought superior to Keynes’s liquidity preference theory because it is more complex, specifying three types of assets (bonds, equities, goods) instead of just one (bonds). Keynes’ Theory of Demand for Money 1 Keynes’ approach to the demand for money is based on two important functions- 1. The quantity theory of money (QTM) refers to the proposition that changes in the quantity of money lead to, other factors remaining constant, approximately equal changes in the price level. Find PowerPoint Presentations and Slides using the power of XPowerPoint.com, find free presentations research about Fishers Quantity Theory Of Money PPT Central to the historical presentation is the idea that Keynes’s thought developed in two distinct stages. The Economics Of Money, Banking, And Financial Markets ... 621438 PPT. The quantity theory of money leads to the conclusion that the general level of prices varies directly and proportionately with the stock of money, i.e., for every percentage increase in the money stock, there will be an equal percentage increase in the price level. Also, I had found Knapp’s State Theory of Money—cited in both Steiger and Keynes–so I speculated on money’s origins (in spite of Minsky’s warning that he didn’t want me to write Genesis) and the role of the state in my dissertation that became a book in 1990—Money and Credit in Capitalist Economies— that helped to develop the Post Keynesian endogenous money approach. It suggests that the disequilibrium in the BOP can be adjusted through marginal variations in the exchange rate, viz., devaluation or revaluation. Effective Money = nominal GDP MV = PY with constant or stable V “an identity, a truism” (M. Friedman, 1992) “valid under any set of circumstances whatever” (Handa, 2000) Really? Money-Multiplier Process in H Theory (With Assumptions)! Desire theory subsumes hedonism when what we want is lots of pleasure and little pain. The quantity theory of money takes for granted, first, that the real quantity rather than the nominal quantity of money is what ultimately matters to holders of money and, second, that in any given circumstances people wish to hold a fairly definite real quantity of money. By introducing speculative demand for money, Keynes made a significant departure from the classical theory of money demand which emphasized only the transactions demand for money. Somehow similar to the Keynesian theory, the Marxian theory of unemployment also believes that there is a relationship between economic demand and employment rate. the quantity theory of money Powerpoint Presentation . Where, M – The total money supply; V – The velocity of circulation of money. The H Theory of Money-Supply (Explained With Diagram)! Behavioural Theories of Wages: Based on research studies and action programmes conducted, some behavioural scientists have also developed theories of wages. Why do people prefer liquidity? Like hedonism, desire theory can explain why an ice-cream cone is preferable to a poke in the eye. What are the determinants of liquidity preference? This also means that the average number of times a unit of money exchanges hands during a specific period of time. INTRODUCTION TO… 2. The subject of this fifth lecture is the theory of money and its value. Nursing theories-ppt 1. 2. Mises shows how money had its origin in the market, and how its value is based on its usefulness as a commodity in exchange. In particular, 1% faster money supply growth causes 1% more inflation. Quantity Theory of Money. Theories of Demand of Money: Tobin’s Portfolio and Baumol’s Inventory Approaches!